Stanley Sporkin, former head of SEC's enforcement division, former CIA head, former U.S. District Judge, former partner of Wachtell Lipton, is now on his own, as a lawyer and consultant, advising on securities compliance and other matters. Among his clients is troubled giant BP. See WPost, Sporkin's New Post: Working For Himself

APA Excelsior III v. Premiere Technologies, 2007 WL 286258 (11th Cir.(2/2/07). The 11th Circuit affirmed a district court's dismissal of a complaint filed under 33 Act section 11 brought by investors who were 30% shareholders in a corporation that merged with defendant corporation. The stock issued pursuant to the merger was registered under section 11, and the registration statement allegedly contained false and misleading statements. Finding that plaintiffs were sophisticated investors who had not exercised their due diligence rights in any meaningful way, the court said could not show reasonable reliance on the registration statement. Since section 11 does not require a showing of reliance (except in one narrow instance, not applicable here), the court looked at legislative history to interpret section 11 as setting forth a presumption of reliance (and not a strict liability statute) and further found the presumption was rebutted in this instance because of its "pre-registration commitment theory."

Teachers Retirement System v. Hunter, 2007 WL 509787 (4th Cir. 2/20/07). Plaintiff alleged a channel-stuffing scheme involving 6 other companies that went on for almost four years, allegedly to inflate the stock price. The majority trashed the plaintiff's 168-page complaint, finding it short on substance. It upheld the district court's dismissal of the compaint both for failure to meet the standards of pleading scienter under the PSLRA and for failure to plead adequately loss causation. In holding that loss causation must be pled with specificity, the 4th Circuit found that the drop in stock price was caused by fallout of an intra-family dispute and was not causally related to misrepresentations.

There was a lot of interesting speculation about the possibility that DaimlerChrysler would get rid of Chrysler somehow, but it's all talk at this time. Otherwise, as in past weeks, it was more news about options backdating (including incriminating emails from Mercury and a report on fugitive Kobi Alexander's activities in Namidia) and hedge funds throwing their money and power around (and Treasury Paulson's Task Force telling us not to worry about it)

By enacting the Private Securities Litigation Reform Act of 1995 (PSLRA), Congress sought to put institutional investors in charges of securities class actions. In an important respect, this effort has failed. Although pension funds for public sector employees and labor unions often volunteer to serve as lead plaintiffs, private institutional investors do not. The participation of public sector and union funds may also reflect political contributions and ideological beliefs, rather than the PSLRA.

The passivity of private sector funds and the importance of ideology and political contributions as motivations for public sector and union funds reflects the incentives created by the PSLRA, which prohibits bonus payments for lead plaintiffs and encourages investors to free-ride.

This Article sets out three possible amendments to the PSLRA designed to give investors of all types selective incentives to serve as lead plaintiffs. One would give lead plaintiffs bonuses tied to the size of their holdings. The second proposal would sell 20% of the class-wide recovery to the class member willing to pay the most for it, while also requiring the lead plaintiff to pay half the class' attorneys' fees from this portion. The third proposal would auction off 30% of the recovery, while requiring the lead plaintiff to pay 100% of the class' attorneys' fees. The second and third proposals would encourage lead plaintiffs to set class counsel's fees at efficient rates.

This paper studies three scandals that embroiled U.S. financial markets during the past decade, including the Nasdaq market-makers' use only of odd-eighths quotes, the abuse of specialist power on the New York Stock Exchange, and the mutual fund scandal. We attempt to attribute the resolution of these situations to the curative effects of markets versus regulation. We argue that the intervention of the legal system through regulation and/or litigation is often necessary to help resolve the misalignment of incentives needed for markets to accomplish their goal of maximizing value. The paper suggests that there exists an important synergy between financial markets and law that is often overlooked.